This General Dynamics Insider Isn’t Worried About Spending Cuts

According to a Form 4 filed with the SEC, William Osborn directly purchased 5,000 shares of General Dynamics Corporation (NYSE:GD) on February 1^st at an average price of $66.48 per share. Osborn serves on the Board of Directors at General Dynamics and so this transaction had to be reported as an insider purchase. He now owns nearly 12,000 shares of the stock and so this is a significant percentage increase in his holdings. On average, stocks bought by insiders tend to outperform the market (see our overview of studies on insider trading) since the principles of diversification work against insider purchases and so they should tend to occur when the insider is particularly confident that the stock price will rise. However, we had recently reported on Osborn buying shares of another company where he sits on the Board, Abbott Laboratories (NYSE:ABT) (read our analysis of that insider purchase); it’s possible that these insider purchases are casual in nature, or that he is generally bullish on the stock market and expressing that view through these two stocks among others.

General Dynamics Corporation is a $23 billion market cap company whose products include aircraft, military combat vehicles, and ships and submarines. The stock price has fallen 9% in the last year, against a rising S&P 500, on plans by the federal government to reduce its spending in general and military spending in particular. Obviously the U.S. government is a leading customer for General Dynamics, responsible for the majority of the company’s revenue. Last quarter, General Dynamics reported a 12% decrease in revenue compared to the fourth quarter of 2011. Special charges resulted in operating and net losses; when the company corrected for those factors, earnings per share for the quarter came out to $1.39 which was still down from $1.68 a year ago. Analyst estimates for 2013 imply a current-year P/E of 10, with the stock trading at 9 times forward earnings estimates.

Warren Buffett has been an investor in General Dynamics Corporation, with Berkshire Hathaway reporting a position of 3.9 million shares in its 13F filing for the end of September 2012 (check out Buffett’s stock picks). Billionaire David Shaw’s D.E. Shaw was buying the stock during the third quarter and owned 1.2 million shares (find D.E. Shaw’s favorite stocks). Our database of 13F filings showed that Longview Asset Management, which is managed by James Star, had over $2 billion invested in General Dynamics and it was one of only four stocks present in the filing.